DEVELOPMENT BANK OF PHILIPPINES v. COA, GR No.

88435, 2002-01-16

Facts:

In 1986, the Philippine government, under the administration of then President Corazon C. Aquino,
obtained from the World Bank an Economic Recovery Loan

The ERL was intended to support the recovery of the Philippine economy

As a condition for granting the loan, the World Bank required the Philippine government to rehabilitate
the DBP which was then saddled with huge non-performing loans.

he DBP was expected to continue "providing principally medium and long-term financing to projects
with risks higher than the private sector may be willing to accept under reasonable... terms.

he Monetary Board adopted Resolution No. 1079 amending the Central Bank's Manual of Regulations
for Banks and other Financial Intermediaries, in line with the government's commitment to the World
Bank to require a private external auditor for

DBP.

he Audit of a Government-owned or controlled bank by an external independent auditor shall be in

addition to and without prejudice to that conducted by the Commission on Audit in the discharge of its
mandate under existing law.

pursuant to Central Bank Circular No. 1124 and the government's commitment to the World Bank, DBP
Chairman Jesus Estanislao wrote the COA seeking approval of the DBP's engagement of a private
external auditor in addition to the COA.

he COA Chairman's reply stated that:

"x x x the Commission on Audit (COA) will interpose no objection to your engagement of a private
external auditor as required by the Economic Recovery Program Loan Agreements... owever, a change in
the leadership of the COA suddenly reversed the course of events.

Howe... wrote the Central Bank Governor protesting the Central Bank's issuance of Circular No. 1124
which allegedly encroached upon the

COA's constitutional and statutory power to audit government agencies.

hat the COA resident auditors were under instructions to disallow any payment to the private auditor
whose... services were unconstitutional, illegal and unnecessary.[15]... the DBP paid the billings of the
private auditor in the total amount of P487,321.14[17] despite the objection of the COA.
To allow private firms to interfere in this governmental audit domain would be to derogate the
Constitutional supremacy of State audit as the Government's guardian of the people's treasury, and as...
the prime advocate of economy in the use of government resources.'

Issues:

whether or not the constitutional power of the COA to examine and audit the DBP is exclusive and
precludes a concurrent... audit of the DBP by a private external auditor.

The DBP's petition raises the following issues:

Does the Constitution vest in the COA the sole and exclusive power to examine and audit government
banks so as to prohibit concurrent audit by private external auditors under any circumstance?

Is there an existing statute that prohibits government banks from hiring private auditors in addition to
the COA? If there is none, is there an existing statute that authorizes government banks to hire private
auditors in addition to the COA?

If there is no legal impediment to the hiring by government banks of a private auditor, was the hiring by
the DBP of a private auditor in the case at bar necessary, and were the fees paid by DBP to the private
auditor reasonable, under the circumstances?

Ruling:

The DBP's petition is meritorious.

First Issue: Power of COA to Audit under the Constitution

The resolution of the primordial issue of whether or not the COA has the sole and exclusive power to
examine and audit government banks involves an interpretation of Section 2, Article IX-D of the 1987
Constitution.

The COA vigorously asserts that under the first paragraph of Section 2, the COA enjoys the sole and
exclusive power to examine and audit all government agencies, including the DBP. The COA contends
this is similar to its sole and exclusive authority, under the second paragraph... of the same Section, to
define the scope of its audit, promulgate auditing rules and regulations, including rules on the
disallowance of unnecessary expenditures of government agencies. The bare language of Section 2,
however, shows that the COA's power under the first paragraph... is not declared exclusive, while its
authority under the second paragraph is expressly declared "exclusive." There is a significant reason for
this marked difference in language.

The clear and unmistakable conclusion from a reading of the entire Section 2 is that the COA's power to
examine and audit is non-exclusive. On the other hand, the COA's authority to define the scope of its
audit, promulgate auditing rules and regulations, and disallow... unnecessary expenditures is exclusive.
as the constitutionally mandated auditor of all government agencies, the COA's findings and conclusions
necessarily prevail over those of private auditors, at least insofar as government agencies and officials
are concerned.

The mere fact that private auditors may audit government agencies does not divest the COA of its
power to examine and audit the same government agencies. The COA is neither by-passed nor ignored
since even with a private audit the COA will still conduct its usual... examination and audit, and its
findings and conclusions will still bind government agencies and their officials. A concurrent private
audit poses no danger whatsoever of public funds or assets escaping the usual scrutiny of a COA audit.

the COA's power to examine and audit government banks must be reconciled with the Central Bank's
power to supervise the same banks.

The inevitable conclusion is that the COA and the Central Bank have concurrent jurisdiction, under the
Constitution, to examine and audit government banks.

However, despite the Central Bank's concurrent jurisdiction over government banks, the COA's audit still
prevails over that of the Central Bank since the COA is the constitutionally mandated auditor of
government banks

Second Issue: Statutes Prohibiting or Authorizing Private Auditors

The COA argues that Sections 26, 31 and 32 of PD No. 1445, otherwise known as the Government
Auditing Code of the Philippines, prohibit the hiring of private auditors by government agencies.

Section 26 is a definition of the COA's "general jurisdiction." Jurisdiction may be exclusive or

concurrent. Section 26 of PD No. 1445 does not state that the COA's jurisdiction is exclusive, and there
are other laws providing for concurrent jurisdiction. Thus,... Section 26 must be applied in harmony with
Section 58[32] of the General Banking Law of 2000 (RA No. 8791) which authorizes unequivocally the
Monetary Board to require banks to hire independent auditors. S

Third Issue: Necessity of Private Auditor and Reasonableness of the Fees... he hiring of a private auditor
was not only necessary based on the government's loan covenant with the World Bank, it was also
necessary because it was... mandated by Central Bank Circular No. 1124 under pain of administrative
and penal sanctions.

Principles:

During the deliberations of the Constitutional Commission, Commissioner Serafin Guingona proposed
the addition of the word "exclusive" in the first paragraph of Section 2, thereby granting the COA the
sole and exclusive power to examine and audit all government agencies.

However, the Constitutional Commission rejected the addition of the word "exclusive" in the first
paragraph of Section 2 and Guingona was forced to withdraw his proposal. Commissioner Christian
Monsod explained the rejection in this manner:
"MR. MONSOD. Earlier Commissioner Guingona, in withdrawing his amendment to add "EXCLUSIVE"
made a statement about the preponderant right of COA.

"For the record, we would like to clarify the reason for not including the word. First, we do not want an
Article that would constitute a disincentive or an obstacle to private investment. There are government
institutions with private investments in them, and some of these... investors - Filipinos, as well as in
some cases, foreigners - require the presence of private auditing firms, not exclusively, but
concurrently. So this does not take away the power of the Commission on Audit. Second, there are
certain instances... where private auditing may be required, like the listing in the stock exchange. In
other words, we do not want this provision to be an unnecessary obstacle to privatization of these
companies or attraction of investments."[22] (Emphasis... supplied)... the Central Bank has been
conducting periodic and special examination and audit of banks to determine the soundness of their
operations and the safety of the deposits of the public. Undeniably, the Central Bank's power of
"supervision" includes the... power to examine and audit banks, as the banking laws have always
recognized this power of the Central Bank.[31] Hence, the COA's power to examine and audit
government banks must be reconciled with the Central Bank's power to supervise the same banks.

The inevitable conclusion is that the COA and the Central Bank have concurrent jurisdiction, under the
Constitution, to examine and audit government banks.

However, despite the Central Bank's concurrent jurisdiction over government banks, the COA's audit still
prevails over that of the Central Bank since the COA is the constitutionally mandated auditor of
government banks. And in matters falling under the second... paragraph of Section 2, Article IX-D of the
Constitution, the COA's jurisdiction is exclusive. Thus, the Central Bank is devoid of authority to allow or
disallow expenditures of government banks since this function belongs exclusively to the COA.

The Bangko Sentral ng Pilipinas, which succeeded the Central Bank, retained under the 1987
Constitution and the General Banking Law of 2000 (RA No. 8791) the same constitutional and statutory
power the Central Bank had under the Freedom Constitution... and the General Banking Act (RA No.
337) with respect to the independent audit of banks.

this Court has held consistently that the rules and regulations issued by the Central Bank pursuant to its
supervisory and regulatory powers have the force and effect of... law.
8 The preamble of EO 81 provides:

“x x x

WHEREAS, paragraph 2, Section 31, Chapter 10, Title III, Book III of the Administrative Code of 1987
grants the President the continuing authority to reorganize the Office of the President by, among others,
transferring any function, to include certain programs, from other Departments and/or Agencies to the
Office of the President.”

EO 292 clearly authorizes the President to transfer any function or agency of the DECS to the Office of
the President. Under its charter, the PSC is attached to the Office of the President.9 Therefore, the
President has the authority to transfer the “functions, programs and activities of DECS related to sports
development”10 to the PSC, making EO 81 a valid presidential issuance.

However, the President’s power to reorganize the Office of the President under Section 31 (2) and (3) of
EO 292 should be distinguished from his power to reorganize the Office of the President Proper. Under
Section 31 (1) of EO 292, the President can reorganize the Office of the President Proper by abolishing,
consolidating or merging units, or by transferring functions from one unit to another. In contrast, under
Section 31 (2) and (3) of EO 292, the President’s power to reorganize offices outside the Office of the
President Proper but still within the Office of the President is limited to merely transferring functions or
agencies from the Office of the President to Departments or Agencies, and vice versa.

This distinction is crucial as it affects the security of tenure of employees. The abolition of an office in
good faith necessarily results in the employee’s cessation in office, but in such event there is no
dismissal or separation because the office itself ceases to exist.11 On the other hand, the transfer of
functions or agencies does not result in the employee’s cessation in office because his office continues
to exist although in another department, agency or office. In the instant case, the BPESS employees who
were not transferred to PSC were at first temporarily, then later permanently reassigned to other offices
of the DECS, ensuring their continued employment. At any rate, RA 9155 now mandates that these
employees “shall be retained by the Department.”
WHEREFORE, the instant petition is DISMISSED. No pronouncement as to costs.

_______________

9 Section 4 of RA 6847 provides:

“Status of the Commission.—The Commission shall have the same status as that of a governmental
regulatory national agency attached to the Office of the President with the Chairman thereof being of
the same level as a department undersecretary and the Commissioners that of department assistant
secretaries.”

SO ORDERED.

Davide, Jr. (C.J., Chairman), Vitug and Azcuna, JJ., concur.

Ynares-Santiago, J., No part.

Petition dismissed.

Note.—That Congress can delegate the power to create positions has been settled by previous decisions
upholding the validity of reorganization statutes authorizing the President of the Philippines to create,
abolish or merge offices in the executive department. (Viola vs. Alunan III, 277 SCRA 409 [1997])
Domingo vs. Zamora, 397 SCRA 56, G.R. No. 142283 February 6, 2003

G.R. No. 170021 September 8, 2006

OFFICE OF THE PRESIDENT, petitioner,

vs.

NITA P. BUENAOBRA, respondent.

Facts:

The Office of the Ombudsman’s Special Prosecution Officer filed an information against Nita Buenaobra,
chairman of the Komisyon sa Wikang Pilipino, with the Sandigan bayan for violation of Section 4(e)of
R.A. 3019 for allegedly causing undue injury to the government through gross inexcusable negligence in
connection with the unauthorized reprinting of the Diksyunaryo ng Wikang Pilipino. The Sandiganbayan
ordered a reinvestigation while the Presidential Anti-Graft Commission (PAGC) conducted a parallel
administrative investigation against respondent charging her with the same acts and omissions subject
of the Sandiganbayan case. On April 11, 2003 petitioner adopted PAGC’s recommendation and
dismissed respondent from office.

Issue: WON respondent being a presidential appointee and a holder of of a non career service position
could be removed from service at the pleasure of the President.

Held: No. Non-career service personnel enjoy security of tenure.They may not be removed without just
cause and observance of due process.